Curious items appear in the two initiatives filed by the California Teachers Association to split the property tax roll taxing commercial property more than residential property. Both measures contain a pair of tax cuts as part of the packages that, overall, would result in massive tax increases.
One item would double the homeowner’s exemption and increase the renter’s credit. The second would create an exemption for business personal property tax.
When the $7,000 homeowner exemption was created, the exemption was equivalent to about one-quarter of the average California home’s value. However, after years of housing inflation the $7,000 exemption has little impact. It saves $70 off the homeowners’ property tax bill. Increasing the homeowner exemption to offset inflation driven value is a good idea.
However, the CTA measures merely increases the savings to $140. Such a small amount does little to offset inflation built into home costs.
If the homeowners’ exemption is brought back to its original purpose homeowners should enjoy real savings. Of course, that would mean a large tax cut that is not part of the CTA agenda.
How much of that new $70 tax savings will be left when increased property taxes on business are passed on to consumers? Probably nothing. The overall tax increase contained in the split roll proposals is in the billions of dollars. Taxes were increased $12.5 billion last February. But, while that tax increase was temporary, the split roll tax increase would be permanent and will cost consumers much money in the end.
So what’s the deal with the small homeowner’s exemption increase in the CTA initiatives? Could it be that initiative proponents are trying to secure passage of their measure with a cool fifty and twenty dollar bill slapped across the palm?
The second proposal would eliminate the personal property tax on business equipment valued up to $1-million. The idea is to reduce the burden on small businesses.
Frankly, it would be a good idea to do away with the personal property tax for businesses just as it was eliminated for homeowners years ago. But, if this provision is meant to mollify the small business owner it won’t work.
The tradeoff for small business will be an increase in their real property taxes. If the small business owns commercial property, taxes will increase one of two ways. Depending on which initiative moves forward one plan increases commercial property taxes 55% by lifting the tax rate from 1% to 1.55%. The other reassesses the property’s value at least once every three years.
If the small business does not own but rents, the rent will go up to offset the taxes. Few, if any, small business will see an advantage of trading personal property tax reductions for real property tax increases, which are bound to overwhelm any savings from the personal property tax exemption.
Offering flowers with one hand while using a mallet with the other to bash the business owner and homeowner is not good public policy.